Retail was the only asset class to see a decrease in investment sales activity in 2017. Office and industrial both had record-breaking investment activity, and multifamily saw a nominal increase in activity, according to research from CBRE. While retail sale activity overall was down, price-per-square foot actually increased. Scott Peterson, an SVP at CBRE, sat down for an exclusive interview to talk about the trends in the San Diego retail market, and says that the increase in pricing says a lot about the demand for retail: quality properties are trading while sub-par properties—whether due to location or tenant mix—are not. Here Peterson gives us a look inside the San Diego retail market.
GlobeSt.com: At the end of last year, retail was the only asset class with a decrease in sale volume in San Diego. Why is this asset class struggling?
Scott Peterson: You can see that retail sales are down, but price per square foots are up. That means that the better properties are selling. The properties that are being affected by ecommerce and would therefore have a lower price-per-square foot are not trading. Quality properties are trading and they are trading at premiums and high prices. The properties that are struggling are not trading.
GlobeSt.com: What does this say about what is happening in the retail market?
Peterson: There is a true bifurcation of retail. It is either good or bad. If it is good, it is trading at stable prices. If it is bad, it isn't trading. We track a list of properties on the market in the retail space, and last year it got longer and longer because the properties that weren't in favor or had a little more susceptibility to ecommerce weren't getting the prices that owners wanted, so they left them on the market hoping that a buyer would come. A lot of them would either be taken of the market or stay on the market and not sell.
GlobeSt.com: Which submarkets are seeing more retail properties trade, and which submarkets are seeing retail struggle?
Peterson: It isn't a specific location. It is very property specific. Del Mar isn't selling better than Escondido. It is a specific property on a specific corner that is selling better than another property on another corner in the same market. Or, a property might not have the right tenant mix. It is very specific to location and tenant mix.
GlobeSt.com: Has there been any move to repurpose poor quality retail assets for other uses?
Peterson: I haven't seen that yet. I think that as time places on, you will start to see more of that. You may start seeing some functionally obsolete retail being converted into other uses, but what has happened in the last couple of years is that everyone has pushed the restaurant business. Now, we have over restaurant-ed ourselves, and we have seen a lot of turnover in the restaurant space. Now, if you had a particular space that you tried to change the use to a non-ecommerce oriented tenant and that hasn't worked, then owners are going to start looking to re-entitle the space and re-develop it. I think that will definitely happen in a market like San Diego that is starved for multifamily or for-sale product.
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Kelsi Maree Borland
